Startups often fail to displace incumbents because they become successful 'point solutions' and get acquired. The harder path to a much larger outcome is to build the entire integrated stack from the start, but initially serve a simpler, down-market customer segment before moving up.

When Figma started, VCs deemed the designer market too small. While this made fundraising harder, it also meant fewer competitors rushed in. This perceived niche gave Figma the time and space to build a complex, defensible product before the market's true potential became obvious to everyone.

Niching down allows you to dominate a small pond with less competition, enabling higher prices and faster learning. Once you're the "biggest guy in a puddle," you use your acquired skills and resources to graduate to a pond, then a lake, and finally the ocean.

Instead of starting with the largest, simplest market, Beluga Labs chose the niche with the most complex tax scenarios (content creators). By solving this hard problem first, they ensure their tax engine is powerful enough to easily scale to less complicated self-employed individuals later.

Flock Safety was dismissed by VCs because its initial market of neighborhood associations seemed too small. This perception of a small TAM acted as a moat, deterring competition and allowing them to build a foundation to later expand into much larger government contracts.

Although Moonshot AI's platform can optimize any digital experience, the company deliberately targets only e-commerce as its initial market. This "laser focused" beachhead strategy allows the early-stage startup to concentrate resources and build a strong foundation before expanding into other verticals.

Instead of a broad launch, Everflow targeted only mobile affiliate networks—a small market they knew deeply from their previous company. This allowed them to build very specific, high-value features for that ICP, win deals, and establish a strong beachhead before expanding into larger, adjacent markets.

Well-funded startups are pressured by investors to target large markets. This strategic constraint allows bootstrapped founders to outmaneuver them by focusing on and dominating a specific niche that is too small for the venture-backed competitor to justify.

Don't fear competitive "red oceans"; they signal huge demand. The winning strategy is to start in an artificially constrained niche (a puddle) where you can dominate. Once you're the biggest fish there, sequentially expand your market to a pond, then a lake, and finally the ocean.